Euro-bailout to send gold and silver prices much higher
Posted on 10 May 2010 with 5 comments from readers
Gold and silver prices advanced late last week in the aftermath of Thursday’s 1,000-point plunge in the Dow, and bounced higher in the immediate reaction to the near trillion dollar euro-bailout package on Monday morning.
‘Mr Gold’, Jim Sinclair explained: ‘A nuclear solution to Europe’s debt problems is simply another way of saying ‘Quantitative Easing to Infinity’. All national debt will be bailed out. All states of the USA will be bailed out. Paper currencies are headed to dust.
‘Regardless of the first knee jerk market reaction, gold is going to $1,650 and beyond due to nuclear suggestions of adding more debt to entities failing because of debt. This is the EU Helicopter Drop coming up.’
Money printing in Europe
Mr Sinclair is absolutely right. The Europeans have thrown in the towel in terms of austerity and are heading instead for the politically easier option of inflation through money printing. This can only be a positive for gold and silver as money that cannot be printed.
For democratic societies the austerity required for debt repayments is very difficult to muster. Note the riots on the streets of Athens last week. However, as Mr Sinclair often reminds readers of his excellent website jsmineset.com there are consequences to a bailout, especially one this big.
There are no easy answers to high debt for nations. Debt can be inflated away or dealt with by default and devaluation. Inflate away debt and you push up the cost of goods and services while salaries fall behind. If you are living beyond your means you will have to pay the price one way or another. You can delay paying debt, not avoid it.
Inflation ahead
So Europe is going down the bailout or inflation route too. Welcome to the club that the US, Japan and China have joined. This is not a path for healthy economic growth, if there is any. It means stagnation and falling wealth for many as the relative value of many assets to general price levels will fall.
The trick is to find the asset class that inflation actually benefits, and an increasing band of investors are waking up to the fact that gold and silver will fill this role. And as to those who think equities are the answer, the 70s’ precedent does not support that argument at all. Remember the 1974 stock market crash?
As ever the chart from Clive Maund is very prescient:
5 Comments posted by readers:
I think now that money is flocking back into the stock market Gold and Silver will dip. Last week people bought Gold and Silver because stocks were turning sour. If that hand comes back into the market we should see a huge rally in stocks this week.
Pre-market now the market is up 400 points in the US which is huge. Either we rally big time this week or tank big time. With bad news finished we can only rally now unless someone else goes bankrupt. This week I can’t see Gold and Silver rallying unless market tanks.
Ed Note: High market volatility usually comes at the end of an uptrend – never heard of it starting a new uptrend – but it was a lucky break for those UK politicians negotiating a coalition.
they’re not printing money – the bond purchases are sterilized. Get out of your gold while you can
You can do without gold just fine. Try doing without oil and natural gas. The head of Exxon just said on CNBC that algae fuel is decades down the road.
Hugo Chavez, the world’s greatest miss-manager, said he will sign $40,000,000,000 worth of oil deals in a week. Take anything he says with a grain of salt.
Matt Simmons says we have already peaked for light sweet crude oil, and that the oil shortage crisis will hit in about 5 years. I am sticking with my 2016 guess. Everything depends on the Iraqi oil output.
Have some gold, but don’t go hog wild.
Fannie Mae & Freddie Mac just said that they will need another $25,000,000,000 from the US Government.
While I agree with your conclusion that gold and silver will benefit eventually from this Euro Nuclear Option (i.e. pumping massive amounts of printed money in order to buy Sovereign bonds and discourage the shorts), this is merely more Keynesian foolishness by politicians in Eur and US, because they lack the political will to do what really needs to be done.
Attempts to force the bond shorts to flee will not solve the massive debt problems facing the Euro zone countries; look how the Euro’s rise today has quickly faded back to 1.27 in a matter of a few hours!
There will come a time when people of the land will rise up against their governments. The governments especially those in the developed countries are choosing the path of least resistance for every debt trouble they encounter and by doing so they are “dragging” their own people into the net. Someone has to pick up the tab eventually and unfortunately the tax payers are going to be the ones. Many do not realize yet but when taxes begin to increase and costs of living increase they will start looking around what went wrong – that would be a time to head for the hills.
Euro’s “leaders” have shown nothing to the world except that they are the only ones who can slap themselves in their faces repeatedly within the shortest span of time – and brag about it. The ECB claims that they are fiercely independant. The only thing fiercely independant about them is the slap they give themselves on the faces. It renders past make up techniques out of date, and could possibly be setting the new trend in the cosmetics industry.